Uber Changes the World

On my recent vacation in Ireland, my wife and I had the good fortune to ride with a Dublin cab driver named Theophilus Donne. Like most Irish people we met, he was a good talker, so on our ride to the airport, we learned quite a bit, about both Dublin and Theophilus.

He was named for his aunt, who became a Catholic nun and took the name Sister Theophilus.

As a child, other boys taunted him about his unusual name, but he bears it proudly now. In fact, he passed it on to his own son as a middle name.

Theophilus has a friend named Winston, who happens to be a Protestant.

And Winston’s job, since the two men finished school decades ago, has been to turn the page of the Book of Kells, Ireland’s biggest tourist attraction, every day! Winston has to clean the glass, too, and according to Theophilus, Winston gets a new pair of gloves every month.

Like most tourists who visit Dublin, we had seen the book of Kells at Trinity College. But what I liked better was the Trinity College harp, built in the 15th Century and famous as the national symbol of Ireland-seen on Irish currency, euro coins and bottles of Guinness.

Theophilus was a good cab driver, but if I were giving advice to him today, I’d tell him to waste no time in hooking up with Uber, the company that allows consumers to summon a ride from an Uber driver using an app on their phone.

Uber has already disrupted the taxi industry in 37 countries, and last week cab drivers across Europe went on strike, protesting that the company was being allowed to compete unfairly.

Some governments may listen to the cab drivers, but from today’s perspective, the strike was counterproductive, as it encouraged people to try Uber for the first time!

So is Uber a good investment?

Today the company is valued at roughly $17 billion, a sign of its massive growth potential.

And while the company is not yet public, it has every characteristic of some of the greatest growth companies in history.

First, it addresses a mass market.

Second, it empowers customers.

Third, it provides an alternative to a protected industry that has resisted innovation for decades, an industry that disproportionally rewards rich owners over hard-working drivers.

Fourth, every aspect of Uber’s business-from booking to paying to rating (of both the driver and the customer)-takes advantage of today’s digital world.

Fifth, with the trend away from individual car ownership in the U.S. and other advanced economies, the market for driving services looks primed to grow for years.

But I don’t recommend investing in Uber when it comes public, and the main reason is this.

With such a high profile and a high reputation, the stock is unlikely to be a bargain at first.

But I will be watching it closely to see how the stock trades in its first few months.

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Moving on to the market, it’s heated up nicely in recent weeks. Leading stocks are hitting new highs, and even lagging stocks are making progress.

So you should be invested!

But how do you decide what to own?

And how do you know when to sell?

For more than 43 years, the best answer has been to read Cabot Market Letter, which combines stock selection and market timing to beat the market with less risk. There’s no better time to start than now. Get more details here.

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While Uber is fun to talk about, and satisfying to use, when it comes to investing, the most fertile stocks are those that are not yet famous.

If you want BIG winners, you’ve got to buy lesser-known stocks.

Which brings me to the fifth installment of:

10 Stocks to Buy and Hold Forever

The goal, remember, is not to identify stocks that can give you a decent long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). You can hold those forever, but they won’t make you rich.

I want to identify the next Amazon (AMZN), the next Apple (AAPL), the next Google (GOOG) and the next Green Mountain Coffee Roasters (GMCR).

To recap, the key attributes I look for are these:

1. A product or service or business model that is revolutionary.

2. A mass market.

3. A company that’s still small enough to grow rapidly.

4. A company that is not respected-perhaps not even known-by the majority.

5. And last but not least, a stock that’s trending up, indicating that investors’ perceptions of the company are improving. This is important because perceptions are always at least as important as reality.

Also, I keep in mind the words of Thomas Phelps, who wrote “Perhaps the greatest advantage of all in buying top quality stocks without visible ceilings on their growth is that when we do so we give ourselves the chance to profit by the unforeseeable and the incalculable.”

In these days where information flows so rapidly that we risk drowning in it, I like Mr. Phelps’ reminder that the unknown can be even more important. It reminds me to think long and hard about where a company might be years down the road, when it’s far out of sight of the vision of today’s analysts.

Which brings me to today’s stock, No. 5 in the Series, “10 Stocks to Buy and Hold Forever.”

21 Vianet (VNET)

If you’ve already heard of this company, you’re a rarity.

Most investors have never encountered it, for the simple reason that it’s a Chinese company.

But analysts expect 113% earnings growth this year and 74% growth next year, so if you’re looking for red-hot growth, this is one company you should definitely consider.

21 Vianet is the largest carrier-neutral Internet data center services provider in China.

It operates more than 80 data centers in 44 cities in China, serving more than 2,000 corporate and institutional customers.

It guarantees 99.9% uptime for Internet connectivity and 99.99% uptime for power, using its own private optical fiber network that includes redundant connections.

It’s partnered with infrastructure leaders such as IBM, Unisys and Microsoft.

Also, 21 Vianet was the first data center operator in China to receive the ISO 9002 quality system certification from both the American Registrar Accreditation Board and the United Kingdom Accreditation Service.

2013 revenue was $321 million. Earnings were $0.31 per share. And there is no debt.

In sum, it’s still small, and it’s growing fast, so long-term, the potential for the company is huge.

Last but not least, there’s the chart.

VNET came public three years ago at 15, and spent 2012 and the first half of 2013 building a base between 9 and 13.

It blasted out of that base in June 2013 and climbed strongly and steadily all the way to a high of 32 at the market’s high this past March.

The market correction that followed took the stock down to 22 (a 31% correction), and since then it’s been futzing around between 24 and 27, setting up for a resumption of the uptrend.

In short, the main selling is over. Now it’s time to wait for the buyers to take control again.

So, you could just buy here and wait patiently, trusting that it will work out in the long run.

Alternatively, you could wait for the stock to touch its 200-day moving average, which is now at 22 and climbing.

But best yet might be to take the advice of analyst Paul Goodwin of Cabot China & Emerging Markets Report, who was the first Cabot analyst to discover the stock (it’s really an ADR) and who will update you on VNET and other high-potential stocks every week.

Paul’s concentrated portfolio currently has five winners and no losers, and if that sounds like something you’d like, too, I urge you to take a look.

P.S. This month’s Cabot Small-Cap Confidential pick is up over 19% since it was recommended just 10 days ago. What stock is it? Well, that’s confidential-unless you’re a subscriber. Click here for a limited time offer on a 90-day risk-free trial subscription to Cabot Small-Cap Confidential.

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Market Update

From Cabot Dividend Investor

The market continues to lean bullish, with warning signs. While the Dow has been hitting all-time highs, the S&P has gone nowhere for two weeks and the Nasdaq has actually lost ground. Investors seem to be deserting “risk-on” assets, leading to underperformance in the Russell 2000 (IWM) and high-growth sectors including Semiconductors (SMH) and Biotechs (XBI).

On an individual stock level, earnings reactions have been leaning negative. Companies that disappoint are punished severely, while companies that beat are rewarded weakly, if at all.

Meanwhile on the fixed income side, Friday’s hot payrolls report increased inflation expectations and drove bond yields higher over the weekend. But yesterday’s North Korea panic drove investors out of stocks and into conservative assets, driving bond yields lower once again. “Risk-off” classes, including utilities, benefited.